S.L Peeran, Member (J) - (1.)THIS appeal arises from Order -in -Appeal No. 443/03 CUS dated 23.12.2003 passed by the Commissioner (A), Bangalore confirming the demand of duty for purported non -fulfillment of export obligation. The appellant contend that the capital goods and invoices were under custom bond in private bonded warehouse and they are not required to discharge duty before the goods are cleared. The appellant is 100% EOU engaged in manufacture and export of Car Audio Cassette Players under a collaboration and buy -back agreement with a Korean concern. The imported capital goods and other items were exempted in terms of the notification. The Korean concern committed breach of contract and failed to buy the goods despite appellant having been sent the reminders. They referred the matter to Arbitration and the Arbitrator passed an order in their favour. They proceeded further for recovery of their amounts. The show cause notice was issued to them alleging that the assessee had not fulfilled their export obligation as per their bond executed under the Notification and the EXIM Policy. In virtue of the show cause notice and allegation made thereunder, the demands have been confirmed. It is the contention of the appellants that the confirmation of demands are premature in view of the apex court judgment rendered in the case of LML Ltd. v. CCE, Kanpur , Kiran Spinning Mills v. Collector of Customs reported in 1991 (113 ) ELT 753 (S.C.) and UOI v. Apar Pvt. Ltd. . The Apex Court in these judgments have held that liability to duty would arise only on the date of removal of goods from the warehouse which is bonded and the crucial date for payment of duty would be the date of actual removal of goods from the warehouse in terms of Section 15(1)(b) of Customs Act 1962. The appellant contended that in an identical situation this bench in the case of CC, Bangalore v. Infosys Technologies Ltd. has also held that no duty demand could be made in respect of bonded goods before the expiry of bond period. The appellant contended that they have applied for de -bonding the unit to the Asst. Development Commissioner, Bangalore and the unit having de -bonded they would be liable to pay duty on the de -bonded goods after depreciation granted to them as per Board's Circular dated 26.6.1998 and 22.5.2000. They further relied on the ratio of this bench rendered in the case of Suvarna Aqua Farm and Exports Limited v. CC which has held that when circumstances are beyond the assessee's control leading to non -fulfillment of export obligation, then in such a circumstances penalty is not imposable. The learned Counsel submits that the demands made is premature and therefore no question of interest or penalty can arise as per the Apex Court judgment rendered in the case of Pratibha Processors v. UOI . He also refers to the Tribunal ruling rendered in the case of CCE v. Solitaire Machine Tools Private Limited reported in 2003 (152) ELT 364 (T) which has held that non -fulfillment of export obligation has no nexus or connection with duty liability and on de -bonding depreciation can be claimed till the date of actual payment of duty.
(2.)THE learned SDR fairly concedes the position and submits that the matter can be remanded for re -computation of duty in terms of this bench's order rendered in the case of Suvarna Aqua Farm (Supra) and that of Natural Stone Exports Limited v. CCE vide Final Order No. 33/06 dated 6.1.2006.
(3.)ON a careful consideration, we agree with the learned Counsel and also with the learned SDR for setting aside the demands on capital goods, as the same are still in bond. The duty is required to be recomputed after granting the benefit of depreciation in terms of the judgments cited above. We follow the ratio of the judgment rendered in the case of Natural Stone Exports Limited vide Final Order No. 33/06 dated 6.1.2006. The para 5 is reproduced herein below: 5. We have gone through the records of the case carefully. Both the lower authorities have extracted the following paragraph from Notification 53/97. the importer...binding himself to fulfill the export obligations and conditions stipulated in this Notification and in or under the Import and Export Policy for April 1985, March 1988, published under the Ministry of Commerce, Public Notice No. 1 -ITC (PN) 85 -88 dated 12th April 1985 (hereafter in this Notification referred to as the said Import and Export Policy), as amended from time to time, and to pay on demand, an amount equal to the duty leviable on the goods as are not proved to the satisfaction of the Asst Collector Customs to have been used in the manufacture of articles for export: A careful reading of the above paragraph shows that the appellants are under an obligation to pay on demand an amount equal to the duty leviable on the goods as are not proved to the satisfaction f the Asst. Collector Customs to have been used in the manufacture of articles for export. In the present case, it is not the case of the Revenue that the appellants had not at all exported any goods in terms of the Notification and the permission given by the Department of Industrial Development. It is on record that the appellants have achieved 64% of NFEP, therefore the conclusion that the appellants have not used the imported the goods/indigenously procured goods in the manufacture of articles for export is not correct in view of the partial fulfillment of the export obligations. Hence, demanding duty on the entire goods imported/indigenously procured goods in terms of the relevant Notification is not at all correct. The view taken by lower authority is not in consonance with justice and fair play. The fact that the EOU has been allowed to de -bond is not in dispute. We are in agreement with the contention of the appellants that the demand of duty on capital goods at this stage is rather premature. The 100% EOU is a bonded warehouse in terms in the scheme of 100% EOU and also the Customs Act. It is well settled that duty has to be paid on warehouse goods only at the time of clearance from the warehouse. The lower authorities' view that duty is payable even when the goods are in the bonded warehouse is not as per law. As regards goods other than capital goods (raw materials, consumables, etc.,), the quantity unutilized in the manufacture of articles for export is definitely liable for appropriate duty. Since, the Adjudication Order has treated both the capital goods and the other goods on the same footing, we have no other option but to remand the case to the Original Authority for quantification of duty on the goods (other than capital goods which are imported/indigenously procured duty free but not utilized in the manufacture of articles for export). As regards penalties, we find that due to recession in the industry and other circumstances beyond their control, the appellants could not fulfill the export obligations. There is no finding of deliberate intention on the part of the appellants to violate the law. Hence, the penalties are not justifiable, in fact this Tribunal in the case of Suvarna Aqua Farm & Exports Ltd. v. CC, Guntur held that when the circumstances were beyond the control of the importer, penalty, fine and confiscation are not sustainable. The ratio of the above decision will be applicable to this case also. The duty demand on capital goods imported/indigenously procured duty free is set aside. The appeal is allowed in the above terms.
Respectfully following the ratio of the above noted order, the demands raised on capital goods is set aside and the matter is remanded to the Original Authority for quantification of goods other than capital goods which are imported/indigenously procured duty free but not utilized in the manufacture of articles of export. The appellants are also entitled to claim the benefit of depreciation in terms of the cited judgments. The export obligation could not be fulfilled due to the circumstances beyond the appellants' control and also due to Korean firm not fulfilling the terms of the contract. In view of the matter, the penalties are required to be set aside and ordered accordingly. This appeal is allowed on the above terms. (Operative portion of this Order was pronounced in open court on conclusion of hearing)